The restaurant industry was beset by a number of challenges in 2019, including growing demand for takeout, rising labor costs and higher minimum wages, and increased use of delivery and its impact on profits.
But many chains also struggled with excessive debt, bad decisions, fast growth, overly aggressive cost cuts, revolving CEOs and, of course, litigation.
Don’t take our word for it. Take the word of the restaurant chains that filed for bankruptcy protection in 2019. Several chains sought court help to eliminate debt and dispose of leases, and their reasons were as varied as the chains themselves.
Take, for instance, the problems that did in movie theater-restaurant chain iPic Entertainment, which blamed the rising popularity of reclining theater seats for its decision to seek out federal debt protection.
That said, the company also had $200 million in secured debt and couldn’t raise enough funds from a mini IPO last year to fund its growth.
External influences or internal decisions tend to reveal problems with companies’ financial structure—usually in the form of too much debt. The bankruptcy filings of this year were no different.
That was the case with Perkins & Marie Callender’s, the operator of two family-dining chains that were broken up after a tumultuous 13-year marriage. It filed for its second bankruptcy this year with $115 million in debt, despite improving sales at its two brands. The company didn’t even recover half of that debt in the sale; most of what it did get came from the $51.5 million sale of Perkins to Huddle House.
And by the way, one of Perkins’ largest franchisees, Campbell Land Co., had to file for bankruptcy protection itself.
Delivery was apparently a big boogeyman for struggling restaurants in 2019. Granite City Food & Brewery cited delivery, along with the decline in retail traffic, among the factors that led to its bankruptcy filing in December. The company had $40 million in debt and an opening bid of $7.5 million in a sale.
Houlihan’s also cited third-party delivery in its decision to seek out credit protection, though it has been struggling for some time. The casual-dining chain has a deal to sell itself to Landry’s for $40 million, less than its $47 million in debt.
Landry’s owner Tilman Fertitta was an active buyer of bankrupt chains in 2019. He also bought Restaurants Unlimited for $37 million, less than the company’s $39 million in debt.
The Restaurants Unlimited filing was notable for its use of rising minimum wages as a factor in its bankruptcy, even though the company added a surcharge to customers’ orders to cover the higher costs.
Litigation forced a couple of bankruptcy filings this year, such as the parent company of Gatti’s Pizza and Gigi’s Cupcakes, which cited litigation costs among the reasons for its filing in January. And then there was the parent company of The Palm steakhouse, which filed for credit protection amid a dispute between the company’s controlling shareholders and their cousins.
Being famous didn’t help much, either. Celebrity chef Jamie Oliver saw his restaurant empire fall to bankruptcy protection this year, proving that it takes more than a name to operate a business.
It also takes more than charity. Sandwich chain Even Stevens, which once boasted that it would donate a sandwich to a local nonprofit for every sandwich it sold, filed for federal debt protection in March.
The company at the time blamed fast growth, which was the biggest culprit in what was probably the year’s most notable bankruptcy filing: Kona Grill.
Kona doubled in size between 2012 and 2017, when it had 46 upscale-casual restaurants. It used debt to build the locations, and when many didn’t work, the company started slashing costs.
The company then fired its CEO as a result of those cost cuts, publicly bashed him, then filed a lawsuit against him. The CEO who made the comments resigned just before the chain filed for bankruptcy protection, tried to buy the chain, couldn’t buy the chain—leaving it to be sold to the One Group. Kona is now down to 26 locations, wiping out most of its previous growth.
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